Equity options, which are the most common type of equity derivatives, give an investor the right but not the obligation to buy a call or sell a put at a set strike price prior to the contract’s expiry date. Equity options are derivatives that means their value is derived from the value of an underlying equity. Investors and traders can use e…[Read more]

An Equity Forward contract is an agreement between two counterparties to buy a specific number of equity stocks, stock index or basket at a given price (called strike price) at a given date. For any forward contract no cash changes hands until the maturity of the contract. Equity forward contracts are cash settled in most cases. At maturity, the…[Read more]

Convertible bonds can be thought of as normal corporate bonds with embedded options, which enable the holder to exchange the bond asset for the issuer’s stock. Having properties of both stocks and bonds, convertibles can be an attractive choice for investors and have tended to have lower risk.

A basket option can be used to hedge the risk exposure to or speculate the market move on the underlying stock basket. Because it involves just one transaction, a basket option often costs less than multiple single options. The most important feature of a basket option is its ability to efficiently hedge risk on multiple assets at the same time.…[Read more]

An Asian option or average option is a special type of option contract where the payoff depends on the average price of the underlying asset over a certain period of time. The payoff is different from the case of a European option or American option, where the payoff of the option contract depends on the price of the underlying stock at exercise date.

An American option give an investor the right but not the obligation to buy a call or sell a put at a set strike price at any time prior to the contract’s expiry date. Since investors have the freedom to exercise their American options at any point during the life of the contract, they are more valuable than European options, which can only be e…[Read more]

An implied volatility is the volatility implied by the market price of an option based on the Black-Scholes option pricing model. In cap market, a cap/floor is quoted by implied volatilities but not prices. An interest rate cap volatility surface is a three-dimensional plot of the implied volatility of a cap as a function of strike and maturity.

An implied volatility is the volatility implied by the market price of an option based on the Black-Scholes option pricing model. A volatility surface is derived from quoted volatilities that provides a way to interpolate an implied volatility at any strike and maturity.

An implied volatility is the volatility implied by the market price of an option based on the Black-Scholes option pricing model. An interest rate swaption volatility surface is a four-dimensional plot of the implied volatility of a swaption as a function of strike and expiry and tenor.

Overnight index swaps (OIS) curves became the market standard for discounting collateralized cashflows. The reason often given for using the OIS rate as the discount rate is that it is derived from the fed funds rate and the fed funds rate is the interest rate usually paid on collateral. As such the fed funds rate and OIS rate are the relevant…[Read more]